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You can say the same thing about professional athletes. Sure, there are bench players in the NBA that would love to start for the Warriors for half of what Step

You can say the same thing about professional athletes. Sure, there are bench players in the NBA that would love to start for the Warriors for half of what Steph Curry makes, and they'd probably do a pretty good job. They're amazing basketball players after all. They're likely in the top 1,000 basketball players in the whole world. But they are probably not going to lead the Warriors to a championship. In some situations it's worth paying for that extra little bit of skill+talent. I'm not sure if that small margin matters for running a major HMO, but I could imagine it does. And that small margin might just be having connections and friends. Maybe having those connections and friends is that extra value proposition that a good CEO brings.

confidantlake 3y ago
You can say that but the analogy makes little sense.
bumby 3y ago
I think a key difference is that sports regularly "tests" performance to help make sure the cream rises to the top. The practice squads are are playing the exact same positions to vie for a starting gig. How many B-squad business types get to head-to-head with an active CEO for long enough to see who's really got the chops? As a layperson, it seems like the research is mixed as to whether a specific CEO really matters that much to the bottom line. Despite the inconclusive evidence, though, they sure get paid well like it's a given that they really, really matter.
- btilly 3y ago
  Overall, there is a negative correlation between CEO pay and performance. https://chiefexecutive.net/higher-ceo-pay-produce-better-company-performance/ https://chiefexecutive.net/higher-ceo-pay-produce-better-com...
  - bumby 3y ago
    There are other studies that show the opposite though and it's important to not draw strong conclusions from a single study. To quote one study: "compensation arrangements are endogenous and correlated with many unobservables, measuring their causal effects on behavior and firm value is extremely difficult" Frydman, C. and Jenter, D., 2010. CEO compensation. Annu. Rev. Financ. Econ., 2(1), pp.75-102.
JambalayaJim 3y ago
The difference between Steph Curry and some nba basketball player in the 99.9% percentile actually does matter a lot. And keep in mind hat Curry’s salary is actually lower than his value to a team because of salary cap structures.

confidantlake 3y ago

You can say that but the analogy makes little sense.

bumby 3y ago

I think a key difference is that sports regularly "tests" performance to help make sure the cream rises to the top. The practice squads are are playing the exact same positions to vie for a starting gig. How many B-squad business types get to head-to-head with an active CEO for long enough to see who's really got the chops? As a layperson, it seems like the research is mixed as to whether a specific CEO really matters that much to the bottom line. Despite the inconclusive evidence, though, they sure get paid well like it's a given that they really, really matter.

btilly 3y ago
Overall, there is a negative correlation between CEO pay and performance. https://chiefexecutive.net/higher-ceo-pay-produce-better-company-performance/ https://chiefexecutive.net/higher-ceo-pay-produce-better-com...
- bumby 3y ago
  There are other studies that show the opposite though and it's important to not draw strong conclusions from a single study. To quote one study: "compensation arrangements are endogenous and correlated with many unobservables, measuring their causal effects on behavior and firm value is extremely difficult" Frydman, C. and Jenter, D., 2010. CEO compensation. Annu. Rev. Financ. Econ., 2(1), pp.75-102.

JambalayaJim 3y ago

The difference between Steph Curry and some nba basketball player in the 99.9% percentile actually does matter a lot. And keep in mind hat Curry’s salary is actually lower than his value to a team because of salary cap structures.